#2008-046B "Mexico’s Integration into NAFTA Markets: A View from Sectoral Real Exchange Rates"
by Rodolphe Blavy, and Luciana Juvenal
December 2008
Revised May 2009

Using a self-exciting threshold autoregressive model, we confirm the presence of nonlinearities in sectoral real exchange rate (SRER) dynamics across Mexico, Canada and the US in the pre-NAFTA and post-NAFTA periods. More...

PUBLISHED: Federal Reserve Bank of St. Louis Review, September/October 2009, 91(5, Part 1), pp. 441-64

#2008-045A "Inventories, Liquidity, and the Macroeconomy"
by Yi Wen
December 2008

It is widely believed in the literature that inventory fluctuations are destabilizing to the economy. This paper re-assesses this view by developing an analytically-tractable general-equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. More...

#2008-044A "Dynamics of Externalities: A Second-Order Perspective"
by Yi Wen, and Huabin Wu
November 2008

We show that increasing returns to scale (due to production externalities) may induce a strong degree of asymmetric income effects and nonlinear dynamics that are not fully appreciated by linear approximation methods. More...

#2008-043B "The Stability of Macroeconomic Systems with Bayesian Learners"
by James Bullard, and Jacek Suda
November 2008
Revised July 2009

We study abstract macroeconomic systems in which expectations play an important role. Consistent with the recent literature on recursive learning and expectations, we replace the agents in the economy with econometricians. More...

#2008-042B "Do European Capital Flows Comove?"
by Silvio Contessi, and Pierangelo DePace
November 2008
Revised May 2009

We study the cross-section correlations of net, total, and disaggregated capital flows for the major source and recipient European Union countries. We seek evidence of changes in these correlations since the introduction of the euro to understand whether the European Union can be considered a unique entity with regard to its international capital flows. More...

FORTHCOMING: North American Journal of Economics and Finance

#2008-041B "The Cyclical Properties of Disaggregated Capital Flows"
by Silvio Contessi, Pierangelo DePace, and Johanna Francis
November 2008
Revised May 2009

We describe the second-moment properties of the components of international capital flows and their relationship to business cycle variables for 22 industrial and emerging countries. Inward flows are procyclical. More...

#2008-040C "Are Children 'Normal'?"
by Dan A. Black, Natalia Kolesnikova, Seth G. Sanders, and Lowell J. Taylor
October 2008
Revised February 2009

In his classic work on the economics of fertility, Becker (1960) suggests that children are likely “normal.” We examine this contention. More...

#2008-039B "Did Prepayments Sustain the Subprime Market?"
by Geetesh Bhardwaj, and Rajdeep Sengupta
October 2008
Revised May 2009

Using loan-level data on subprime mortgages, we present evidence on the uniqueness of subprime mortgage design. More...

#2008-038A "Government Response to Home Mortgage Distress: Lessons from the Great Depression"
by David C. Wheelock
October 2008

The Great Depression was the worst macroeconomic collapse in U.S. history. Sharp declines in household income and real estate values resulted in soaring mortgage delinquency rates. More...

#2008-037A "Combining Forecasts From Nested Models"
by Todd E. Clark, and Michael W. McCracken
October 2008

Motivated by the common finding that linear autoregressive models often forecast better than models that incorporate additional information, this paper presents analytical, Monte Carlo, and empirical evidence on the effectiveness of combining forecasts from nested models. In our analytics, the unrestricted model is true, but a subset of the coefficients are treated as being local-to-zero. This approach captures the practical reality that the predictive content of variables of interest is often low. We derive MSE-minimizing weights for combining the restricted and unrestricted forecasts. Monte Carlo and empirical analyses verify the practical effectiveness of our combination approach. More...

FORTHCOMING: Oxford Bulletin of Economics and Statistics